Monday, September 1, 2014

This morning CNN news had a segment discussing excessive executive compensation and the corresponding lack of growth in the compensation received by the generic normal employee. Nothing new with that, it has been a long term issue that has only gotten progressively worse instead of better.

CNN unfortunately twisted this issue to propose that the US government enter the fray to mandate that employees are entitled to better pay and should share in the profits that a corporation makes. Mandated better employee pay does nothing to resolve the issue of executive compensation. Logically, since the US is supposed to be a free market enterprise system, CNN's analysis was absurd because it was comparing oranges to apples.

Based on free market principals, if executive compensation is considered excessive, it is the corporate board of directors who should be squelching it as it is their fiduciary responsibility. Unfortunately, corporate board of directors have failed in this regard. They have been nothing more than rubber stamps for the executives they are supposed to supervise.

That leaves me in a quandary since excessive corporate pay has not been squelched by the board of directors. Ideally, corporate executives should recognize that they are employees (just like anyone else) and should not receive excessive compensation. Given that the board of directors have failed I wouldn't mind government intervention to force the board of directors to act responsibly to protect shareholders from excessive executive compensation.

CNN instead of recognizing that excessive executive compensation has been a market failure, twisted that theme to insist that the US government must step in (in the name of fairness) to increase the wages of employees and the hiring more employees. That is directly contrary to free market principles. One example was an absurd proposition that college students who are graduating with massive debt must be paid very well so that they can pay-down that debt. Companies do not exist for altruistic purposes. They should not be forced to pay "high" wages or to hire unnecessary employees.

CNN should not have twisted the issue of excessive executive compensation into a rallying call for government mandated increased employee compensation. It will not solve the issue of excessive executive compensation.